This corner at Henry St and Park between Midtown and Downtown Detroit will be part of billionaire Mike Illitch's new ice hockey arena and entertainment district. Photo: James Fassinger /The Guardian

Police have started handing out parking tickets outside The Comet Bar, a cozy if incongruous spot smack in the middle of the blighted deadzone between downtown and midtown Detroit. Not so long ago it was hard enough to get the cops to come for a shooting, says the Comet’s pink-haired barmaid, who goes by the name of Nine.

The ticketing appears to be part of a drive to prepare the area for one of the biggest urban renewal projects Detroit has ever seen. And one that is dividing the community. Soon the contractors will move in to start work on a sports and entertainment district at the centre of which will be a $450m arena for the Detroit Red Wings ice hockey team – funded in large part by this bankrupt city.

The Comet faces an uncertain future, but for now it sits in an area mainly visited by locals and the occasional adventurous tourist taking “ruin porn” photos of Detroit’s burnt out buildings. From the back of the bar, across empty rubble strewn lots, you can see two abandoned tower blocks. On the top floor of one someone has graffitied “ZOMBIELAND” in giant black letters.

Inside the Comet Bar located in the proposed district where billionaire Mike Illitch plans to build his new ice hockey arena. All photograph: James Fassinger for The Guardian

There are few people on the street – most appear homeless. The city recently pulled up the remaining benches in the area, in an attempt to discourage people from sleeping here. Now they sleep on the ground.

In February, after a heated public meeting, the city approved a deal that gave Mike Illitch, the Red Wings' billionaire owner, 39 vacant lots in the area, valued at $3m, for $1. Illitch, who made his fortune with the Little Caesars Pizza chain, also owns the Detroit Tigers baseball team, who on Friday offered Miguel Cabrera one of the biggest contracts in Major League Baseball history: $292m over the next 10 years. Illitch is worth an estimated $2.7bn. Along with fellow billionaire and Quicken Loans founder Dan Gilbert, he has been snapping up huge chunks of Detroit at rock bottom prices for redevelopment.

Illitch’s Olympia group will pick up 42% of the arena’s construction cost. The rest will come from a complex financing arrangement using school and local property tax revenue to pay off state-issued bonds. The Detroit Downtown Development Authority (DDA) will own the arena and lease it to the Red Wings for an initial 35 years. The price tag for the entire project is an estimated $650m, $284.5m of which will come in the form of public investment.

The development is getting under way just as Detroit faces a final reckoning with its estimated $18bn in debt. The city declared bankruptcy last year and is about to undergo a painful restructuring which could see retirees' pensions and healthcare benefits slashed.

On Monday the city is expected to file its latest bankruptcy restructuring proposal as its emergency financial manager argues cuts to pensions are essential to solving the city’s crisis.

'All I want is a fair deal'

Half the city’s street lights don’t work; nearly a quarter of the city’s high school students dropped out before graduation last year, while the state dropout rate is one in 10. There were protests ahead of the stadium deal, with locals arguing the money would be better spent elsewhere. Three of the city’s nine council members voted against the sale under the current terms.

“It’s good that something is being done,” said Nine, the Comet bartender. “My fear is that all that’s going to happen is all the good people who lived through all the bullshit and the crack dealers are going to get kicked out. They talk like it’s going to save the city but they did that when Whole Foods opened. It’s just a grocery store. This is just going to be a sports stadium and some shops.”

Nine, bartender at the Comet Bar, thinks the proposed Illitch project could help move the city in the right direction but believes those who now live in the area will pay a high price

Wayne Alexander, the Comet’s owner, said he welcomed redevelopment but said that the people who live and work in the area were getting a raw deal. He has run the bar for eight years and said he was offered $20,000 to go away.

“I pay all my taxes,” he said. “This has been a good business for me. All I want is a fair deal. Illitch is going to make millions off this and all he paid was a dollar.”

Illitch did agree to terms that should benefit the city – Olympia pledged to invest $200m in the area in new retail, offices and housing. At least 30% of contracts will go to Detroit-registered companies. A neighbourhood advisory committee (NAC) has been set up to give feedback from the locals. But there are no guarantees and no penalties if he fails to deliver.

“People are fed up with this,” said Stephanie Vaught, a legal analyst at the Sugar Law Center for Economic and Social Justice in Detroit. “There are no clawbacks if they fail to follow through with any of this. The NAC has no power. If you want to use public tax dollars, you should be held more accountable.”

Vaught said other companies had made similar promises about jobs and revitalisation in Detroit that had failed to materialise. City councillors recently rounded on Marathon Oil after it was revealed it had created just 15 local jobs since receiving $175m in tax breaks from the city.

“There’s this fear in Detroit that we can’t enforce requirements. That’s absolutely false,” said Vaught. She said critics of the project were attacked for dragging down a city already in crisis. “But the city’s first responsibility is to it’s residents. This is not a good deal.”

Mark Morante, senior vice-president of special projects at the state-funded Michigan Economic Development Corporation says opponents have mischaracterised the deal and missed the bigger picture.

“This is a transformational project,” he said. He said the new entertainment area would not only restore a blighted neighbourhood but would also free up the riverside space occupied by the Red Wings' current home, the Joe Louis Arena, for further renovation.

Running over her allotted time to speak, a Detroit resident who voiced her opposition to the plan was directed to sit down by a police officer

He said businesses did not like to have guarantees forced upon them as they needed the flexibility to change with circumstances.

“The Illitches have been in this city for a long time and have a very long track record of doing what they say and creating jobs in the city,” he said, adding that economic studies had shown the benefits of the project and criticisms were “ill founded and not based on facts”.

In a city known for its love of hockey, the venue will create excitement and at least 500 permanent jobs, Morante said.

'It’s almost impossible to think of a worse way to spend the money'

But worryingly for Detroit, there is a large body of evidence that sports stadiums rarely do anything positive for the local economy. Neil deMause and Joanna Caggan chronicle in painful detail the failed promises of sports stadiums in their book and blog, Field of Schemes.

“The odds that Detroit will make back anywhere close to the amount of money it is spending are astronomically small,” said deMause. “It’s almost impossible to think of a worse way for them to spend the money.”

DeMause points to the work of University of Chicago economist Allen Sanderson, who memorably said: “If you want to inject money into the local economy, it would be better to drop it from a helicopter than invest it in a new ballpark.” Sanderson’s research found that new stadiums had a minimal impact on the home city’s economy.

Andrew Zimbalis, professor of economics at Smith College and one of the world’s most prominent sports economists, said some stadium investments pay off for some cities but that the Detroit deal looked like a dud.

“A stadium or an arena by itself does not promote economic activity,” he said. “Most of the funding in this case is going to hit the city budget, they will have to make cuts elsewhere or raise taxes.” Zimbalis said the money would have been much more effective had it been spent on the education system or repairing roads.

Morante disagrees. “Repairing potholes is important,” he said, but money was being put aside for that too. Critics were “second guessing the entire legislative process”, he said.

Mike Illitch and his Olympia Entertainment bussed in hundreds of supporters to pack the city council meeting during the land transfer public comment session and vote. The city council voted by a margin of 6-3 to approve the sale of 39 downtown land parcels, valued at nearly $3m, for $1.

As the diggers move in, critics will be looking closely to see if Detroit can make its new stadium pay. So far they are unconvinced. In the end, said deMause, the real reason Detroit is getting a new stadium is probably more about ego than economics.

“Mayors and governors really like to have stuff they can point to and say, ‘Hey I built that.’ Filling in a thousand potholes, buying some new computers for schools or fixing the street lights just doesn’t have the same appeal.”